There’s no shortage of money – Interview with Louise Wilson, Director, Abundance Investments
Nature-based solutions in cities offer benefits for the environment, for people and for the economy. But cities often find it challenging to fund their implementation and maintenance. To understand how cities can mobilise investment in nature-based solutions in advance of the EU conference on innovative financing for creating green cities, GrowGreen talked to Louise Wilson, director of Abundance Investment.
Question: How can we align the needs of private investors and cities that would like to implement nature-based solutions for adapting to climate change?
Answer: The investment sector has been going through three stages in its approach to investing for more than just financial profit. Initially it was not much more than negative screening – taking out the companies that were somehow ‘worst’. The second stage took a significant step forwards in realising that there are financial benefits to taking a more holistic approach to business which lead to better returns. The third stage is the realisation that those enterprises that are not proactively taking action on all of environmental, social and governance (known as ESG) issues carry significant risk in not doing it, and that a lot of that risk isn’t yet priced in, which therefore creates in itself significant risk of loss of value. The second two stages are only since around 2005, so the investment sector has come a long way in a short period of time. But it hasn’t gone anywhere near fast enough, considering that the IPCCC tells us we have 12 years left to avoid catastrophic climate change.
There are opportunities for the public sector to design investment opportunities for city greening projects that don’t have an obvious set of costs and returns, but do have significant environmental, social and economic benefits, but it will require a substantial shift in thinking and a new level of collaboration between public sector organisations. A new park, for example. It’s full of trees that remove carbon dioxide from the air, it’s a haven of low pollution, and it’s good for wellbeing. That all produces long term health benefits in particular, but the park also helps biodiversity by creating a space in the city for birds, flowers and bees. The public sector is in a position to attribute real financial returns to those benefits. It can then mitigate the risks of investing in the park to create an adjusted risk return, which includes the financial returns that the park generates on one side and its risks on the other side.
This isn’t a straightforward process, but do we really have a choice as to whether we do it or not given the urgency with which we must act? On the plus side, there’s a lot of money out there that would be chomping at the bit to invest for the long term in projects like this if the public sector could come together to create the financial model.
Question: What are the key success factors in developing an investment case for urban nature-based solutions that delivers environmental, social and financial returns?
Answer: Fundamentally, investment is about investing money for the purposes of making a profit. Trying to move away from that definition means going against the building blocks of a sector which is heavily regulated, heavily institutionalised at all levels and therefore inherently slow to move. Until we change the definition of investment, attracting investment which will be much easier if the direct and crucially the indirect social and environmental benefits can be turned into a long term revenue model. For example, the health service could contribute to an asset like a park because it keeps people out of the doctor’s waiting room. Or an outdoor climbing centre is created in that park, which will keep kids off the street, and that relieves some of the pressure on public budgets for policing. If the public sector can come together cross-service to make these types of projects investable and mitigate risk, long term investment will come and at rates that are consistent with internal government borrowing.
Question: What in your view is the role of policy and legislation in leveraging the growing market for investments in nature-based solutions?
Answer: The thing that capital hates most is uncertainty. So whatever happens, if you create a policy framework and legislation that supports it, you cannot keep changing it, even if it isn’t perfect. We have to give these frameworks enough time, and then improve them gradually.
There’s no shortage of money for city greening projects, we just need to go and find a way to create the revenue models that work.
Louise Wilson is the founder and managing director of Abundance Investment, which allows the public to invest in the businesses and projects they believe in. She is one of the opening speakers at the EU conference on innovative financing for creating green cities.